THE GOVERNMENT ACCOUNTING STANDARDS BOARD STATEMENT NO. 34 AND ITS APPLICABILITY TO NATURAL SYSTEMS
Prepared by The Center for Neighborhood Technology and Urban Logic, Inc.
The capital represented by our natural environment is a critical asset that is methodically ignored or assumed to be priced at zero dollars (free). A new government accounting rule can help capture many of the previously “hidden” assets provided by the natural environment, such as natural systems for flood mitigation and stormwater runoff control, and incorporate them into city and state financial statements. The Center for Neighborhood Technology and Urban Logic, Inc. are developing tools to benchmark the local and regional economic benefits of the urban forest and other types of green infrastructure, and suggest how the bond markets can take these values explicitly into account in underwriting, portfolio and project finance settings.
Background: The Government Accounting Standards Board (GASB)
The Government Accounting Standards Board (GASB) is a private, non-profit, accounting standards organization, which develops objective accounting and financial reporting standards for government (www.gasb.org).
In 1999, the GASB issued Statement No. 34: Basic Financial Statements—and Management's Discussion and Analysis (GASB-34), requiring governments to provide a comprehensive view of their overall economic resources and long-term requirements, including the “wear and tear” and expense of capital assets over their useful lives. Infrastructure building and maintenance (roads, bridges, stadiums, schools, etc.) represents more than half of most state and local government budgets. Parks, wetlands and other natural infrastructures are not specifically mentioned but are covered by the rule.
More than 88,000 state and local governments are subject to GASB-34. Large governments with annual revenues exceeding $100 million are scheduled to implement the new rules for fiscal years ending after June 15, 2002; small units with annual revenue below $10 million are slated for years ending after June 15, 2004. In addition, governments have an additional four years beyond the deadlines to include infrastructure assets retroactively.
In 1999, the GASB issued Statement No. 34: Basic Financial Statements—and Management's Discussion and Analysis (GASB-34), requiring governments to provide a comprehensive view of their overall economic resources and long-term requirements, including the “wear and tear” and expense of capital assets over their useful lives. Infrastructure building and maintenance (roads, bridges, stadiums, schools, etc.) represents more than half of most state and local government budgets. Parks, wetlands and other natural infrastructures are not specifically mentioned but are covered by the rule.
More than 88,000 state and local governments are subject to GASB-34. Large governments with annual revenues exceeding $100 million are scheduled to implement the new rules for fiscal years ending after June 15, 2002; small units with annual revenue below $10 million are slated for years ending after June 15, 2004. In addition, governments have an additional four years beyond the deadlines to include infrastructure assets retroactively.
One of the bond rating agencies, Fitch IBCA, has already signaled that “issuers that are early implementers…will receive additional management credit in Fitch rating analyses as part of a continued focus on positive management practices.”
Although governments are not required to implement GASB-34 using geographic information systems (GIS), by utilizing a spatial framework, this information could not only correct mismatches between existing demand and proposed new investment, but also reveal decisions to defer regular maintenance and upkeep of infrastructure and buildings. The experience of one early implementer is instructive. Clark County, Nevada (which includes Las Vegas), found that utilizing GIS to comply with GASB-34 not only resulted in a more comprehensive assessment of the County’s infrastructure assets, but also cost 21 percent less than was budgeted. The County hired a consultant to collect infrastructure data for transfer into various database management systems including the county's GIS. Data collection focused on pavements, signs and supports, curb and gutter, drop inlets, sidewalks and wheel chair ramps, medians, and bicycle paths. The project proved that mass infrastructure data collection could be both efficient and accurate, using the combination of state-of-the-art voice-to-data technology and experienced field and project management personnel. The rapid turnaround and usability of accurate field data, for database and GIS building and decision-making, results in a higher return on investment for the end user.
GIS allows us to document and map the presence of underutilized infrastructure capacity in a region. We can then identify the “carrying capacity” of that infrastructure -- that is, what’s already available for infill and redevelopment. Then, we can compare the value of the underused parts of the system to the cost of building new infrastructure in unbuilt, or greenfield areas. Finally, we can identify corridors composed of two or more jurisdictions where the kinds of accounting called for present an explicit incentive to cooperate around smart growth. Appropriate financial incentives and strategies might then lead to more responsible choices.
GASB-34 AND NATURAL CAPITAL
The capital represented by our natural environment is a critical asset that is methodically ignored or assumed to be priced at zero dollars (free). The Center for Neighborhood Technology and Urban Logic, Inc., believe that GASB-34 can help capture many of the previously “hidden” assets provided by the natural environment, such as natural systems for flood mitigation and stormwater runoff control, and incorporate them into city and state financial statements. What’s needed are tools to benchmark the local and regional economic benefits of the urban forest and other types of green infrastructure, and suggest how the bond markets can take these values explicitly into account in underwriting, portfolio and project finance settings.
Using natural capital figures, two scenarios can be developed: one in which the long-term maintenance costs of traditional roads and sewers are played out. The second would juxtapose the long-term maintenance of using green infrastructure to reduce storm-water carrying capacity at sewage facilities, or the impact of different paving materials on storm-water runoff and long-term road viability.
Ecosystem services have option values that can be exercised in the future if protected. The greater the protection, the greater the number of future options. An accounting system that places a value on these services would reflect damage to natural capital and capture its current and future economic value.
For more information:
Scott Bernstein, President Bruce Cahan Dean Michael Mead
Karen Hobbs, Senior Fellow President Project Manager
Center for Neighborhood Technology Urban Logic, Inc. Government Accounting
2125 West North Avenue 1330 Avenue of the Americas Standards Board Suite 2200 401 Merrit 7
P. O. Box 5116
Chicago, IL 60647 New York, NY 10019 Norwalk, CT 06856-5116
773-278-4800 212-399-9700 203-847-0700, ext. 294
scott@cnt.org (ext. 135) bcahan@urbanlogic.org dmmead@gasb.org
karen@cnt.org (ext. 151)
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